Lesson 4.

1: The Theory of Consumer Behavior

Consumption – refers to the use of goods and services to satisfy human wants directly.

The Utility Function

Utility – the terms used for satisfaction.

Important measures of utility:

Total Utility – refers to the combined utility derived from consuming certain units of a good.

Marginal Utility – refers to the additional utility derived from consuming an additional unit of good.

Lesson 4.2: The Production Theory

Production – refers to the use of economic resources to create goods ad services that will be used to
satisfy human wants.

The Theory of production is an analysis of the input-output relationship.

Input – refers to the resources used to produce goods and services.

Output – refers to the product created as a result of the combination of input in the production process.

Production Function - an equation showing the maximum output of a commodity that a firm can
produce per period of time with each set of input.

Input and output are measured in physical rather than monetary units:

Output = f(input)

The production function is represented in the equation:

O = f(i)

Where O stands for output and I stands for input. To be more specific, output depends on the quantity
of land, labor, and capital available. Thus:

O = f{Ld, Lb,C)

The production function contains the functional relationship between output and the basic factors of
land, labor and capital.

3 forms of Output measure:

Total Product(TP) – the combined production of several units of a given output.

Marginal Product(MP) – the additional output produced by an additional unit of the input.

Average Product(AP) – refers to the average contribution per unit of input.

Lesson 4.3: Socio-Economic Impact of a Business

IMPACT ON THE CONSUMER

A new business, especially one that is innovative and focused on bringing some new product or
service to the market, is always welcome to the consumer who is looking value for his money.

IMPACT ON SUPPLIERS AND INVERTORS

A new business will also provide opportunities for supplier and investors. If a new construction
company is set up, then this opens up opportunities for the other businesses that will supply their
needs.

IMPACT ON THE GOVERNMENT

The government will also benefit from the establishment of new businesses, through revenues
earned on fees collected from them and on taxes imposed on the incomes of the businesses.

IMPACT ON HOUSEHOLDS

New businesses mean employment opportunities for the Filipinos. Those who have jobs but are
earning low-wages may find better paying jobs with the new companies. Unemployed workers looking
for work may have the chance of being employed by these companies.

IMPACT ON THE COMMUNITY

Corporate Social Responsibility(CSR) has become a growing trend among businesses today.
Corporations and even small business have increased their focus on projects that provide scholarships to
poor but deserving students, allocating budgets for housing for low-income families such as
participation in programs like the Gawad Kalinga, environmental protection and other environment
related program.

Lesson 4.4: Socio-Economic and Government Impact on Business

GOVERNMENT IMPACT ON BUSINESS

While the government increasingly spends on socio economic services to improve business
condition, size and inadequate and support services limit the growth opportunities of micro enterprises.
Size limits business access to technology, credit and market networks in the absence of government
support services.

Household impact on Business

Although the country’s populatin is still young with a majority